Optimal macroprudential and fiscal policy in a monetary union

María Malmierca

Economic Modelling, 2023, vol. 122, issue C

Abstract: The link between the financial system, economic activity, and fiscal sustainability is increasingly evident, making the joint study of fiscal and macroprudential measures a promising area to investigate. This paper provides a novel analysis of the coordination of optimal fiscal and macroprudential policies regarding welfare maximization through a two-country model for a monetary union. I find that the advisability to coordinate macroprudential and fiscal policy depends on the kind of shock that hits the economy. After financial shocks, macroprudential-fiscal coordination at the national level entails the greatest welfare improvements. Under supply and demand shocks, the best option regarding welfare implies macroprudential-fiscal coordination to stabilize union aggregate variables.

Keywords: Welfare analysis; Policy coordination; Credit growth; Currency area (search for similar items in EconPapers)
JEL-codes: E44 E62 F42 F45 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:122:y:2023:i:c:s0264999323000500

DOI: 10.1016/j.econmod.2023.106238

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